Mr. HESTER. It would be a "vehicle", line 9.

Senator BAILEY. Section 6 relates wholly to watercraft, to water transportation?

Mr. BERKSHIRE. That is correct. The word "vehicle" comes along and then we include the airplane.

Senator BAILEY. You have a subsequent section on that? This is just for watercraft, this section 6?

Mr. BERKSHIRE. Lines 9 and 10, Senator, I think would cover the thing that you have in mind, the aircraft.

Senator BAILEY. I see. You made a distinction. You have got the word "vessel" relating to watercraft and the word "vehicle" relating to aircraft.

Mr. BERKSHIRE. That is right.

Senator BAILEY. That is all right.

Mr. HESTER. I will repeat, under title II. Sections 201 and 202 amend sections 3287 and 3295 of the Revised Statutes, respectively, so as to permit distillers and their employees to do such marking and branding and such mechanical labor pertaining to gaging required under the sections, as the Secretary of the Treasury deems proper and determines may be done without danger to the revenue. By relieving the storekeeper-gager of the duties of performing manual work connected with marking and branding, he will be afforded much better opportunity to keep close surveillance over the activities of the distillers to see that they comply with the laws and regulations. This will also expedite the entry, tax payment, and withdrawal of spirits.

I would like to have Mr. Forrest, who is an attorney in the Alcohol Tax Unit and who has actually supervised this very activity in a distillery, explain it to the committee, if you care to have it.

Senator BAILEY. What I wish you would do for me is to explain why we should now correct the Revised Statutes, section 3287. Here is my point: We have just printed the statutes of the United States as of January 3, 1935. Now we begin to amend it. There is something in just having a book of laws that you can rely on and not change the fundamental laws and statutes all the time. These are trial laws. here. If there is some reason for it I am willing to do it, but it must be a very good reason. When I pick up a law book I would like to know that the law is in there, I do not want to look up an amending act of Congress.

Mr. HESTER. There is considerable in what you say, Senator. Senator BAILEY. If you practice law you know there is a great deal in what I am saying. You sit down with a book of law and then somebody brings in a little leaflet on a law that has been passed in the last 6 or 8 months.

Mr. HESTER. I would like to have Mr. Forrest explain this statute relating to the distillery.

Senator BAILEY. What was wrong with the old statute? What was the mischief that you are trying to correct?

Mr. FORREST. Under section 3287 as to entry gage, section 3295 as the withdrawal gage, and under section 3290 the storekeeper-gager was not permitted to allow anybody to use his tools or to put on the packages any marks, brands or stamps required by law, but in the interest of speeding up things in the cistern rooms upon entry, in the warehouse, and on the withdrawal, it was determined that if he could

do the matter of proofing, find out the proof in each package and then make his marks on his record, the employees of the distiller could take the hammer and make the marks on the package, the operations could be speeded up in that way.

Senator BAILEY. You are relaxing the old law?

Mr. FORREST. We are relaxing the old law to that extent. It being necessary to amend sections 3287, 3295, and 3290 to accomplish that we decided to restate section 3287, so as to make it a little plainer and to incorporate in it some of the requirements as to the branding and stamping that existed heretofore only in the gaging manual, which is a species of regulation. You will find that section 3287 has not been changed very much.

Are you gentlemen familiar with the operations of a distillery?
Senator BAILEY. I am; yes.

Mr. FORREST. I just wondered whether my brief explanation fully acquainted you with these physical labors, because they are physical labors.

Senator KING. In the main this is merely a reproduction of the existing law?

Mr. FORREST. A reproduction of the existing law, with the addition that after the storekeeper-gager has determined the basis for taxation the distiller's man may take the hammer, so-called, and make the marks on the bung-stave, to be looked at and checked by the storekeeper.

Senator BARKLEY. The storekeeper or his employee need not perform any manual labor in connection with the stamping of these packages?

Mr. FORREST. That is correct.

Senator BAILEY. I wish to make a correction. I am not at all familiar with a lawful distillery. I know a great deal about the illicit distillery. I would not be up-to-date at all on the modern distillery. Mr. FORREST. I didn't have that in mind.

Mr. HESTER. The real purpose is to increase efficiency in administration and economy.

Senator KING. Proceed.

Mr. HESTER. Section 3287 of the Revised Statutes is further amended to harmonize it with existing law and to include requirements as to marking, branding, and stamping which have been prescribed by regulations and gaging manuals for many years.

Senator KING. Is there anything further you desire to say concerning subdivision (b)?

Mr. HESTER. Yes; there is one other provision there.

As herein amended, section 3287 will also permit the Secretary, by regulations, to prescribe the standards of fill of casks and packages at each distillery, thereby facilitating the entry of spirits into the warehouse and reducing the amount of detail work to be performed by the storekeeper-gager. The advantage of having the standards of fill prescribed is that it assures that each cask will have a definite amount run into it from a cistern, thus obviating a good deal of the detail work connected with the weighing of the casks.

That is just another one of the requirements that is going to speed up the work and result in increased efficiency and economy.

Senator BAILEY. Going back to section 201, would you gentlemen get a copy of the existing law and make a comparison between that and the proposed change, so we will know just exactly what

changes are proposed? You are going over this with great rapidity. I would like to know the details of the changes.

Senator BARKLEY. Suppose you put a copy of the existing sections in the testimony here?

Mr. FORREST. Yes, sir.

Mr. HESTER. We have that in the committee report.

Senator BAILEY. Mr. Parker calls my attention to the fact that in the report of the House the changes are indicated here in brackets. Mr. BERKSHIRE. That is correct.

Mr. PARKER. The material in brackets is omitted and the material in italics is the new matter.

Senator BAILEY. Let it appear in this record this morning that on pages 12 and 13 of the House report the changes are indicated as stated in section 201. That will be all right.

Section 203 amends section 3290 of the Revised Statutes by relieving storekeeper-gagers of liability to penalties if distillers are authorized. to perform the duties which may be imposed upon them by regulations prescribed under the authority of sections 201 and 202.

TITLE III

Section 301 is amendatory of section 3262 of the Revised Statutes, which now requires each distiller to own the distillery property in fee, or to secure the written consent of the owner of the fee, and of any mortgagee, judgment creditor, or other person having a lien thereon, to the use of the property for distilling purposes. This consent must stipulate that the lien of the United States for taxes and penalties shall have priority over such mortgage, judgment, or other encumbrance, and that in the case of the forfeiture of the distillery premises or any part thereof the title to the same shall vest in the United States discharged from such mortgage, judgment, or other encumbrance. The amendments are (1) that if the distiller who is not the owner of the fee cannot secure the consents and stipulations now required by law, he may, in lieu thereof, with the approval of the Commissioner of Internal Revenue, file a bond, and (2) that the lien imposed by section 3251 of the Revised Statutes on the distillery premises shall not attach by reason of distilling done during any period included within the term of any bond so filed.

At the present time there is a criminal penalty for any storekeepergager who permits the distiller to do any of the work which he is now authorized to do, and with the permission of the Secretary of the Treasury under this section they relieve him of that penalty.

Mr. FORREST. Do you offer sections 3295 and 3290 also for the stenographer?

Senator BAILEY. I haven't got that far yet.

Mr. FORREST. That has to do with the withdrawal gage. Section 3290 follows section 3295.

Senator BARKLEY. Why is this bill written so that section 203 means section 3290 and section 202 means section 3295?

Mr. FORREST. Because the entry gage comes first, that is section 3287 Revised Statutes, then withdrawal gage, section 3295 Revised Statutes, and section 3290 deals only with the duties to be performed by the storekeeper-gager. That seems to be the logical sequence.

Senator BARKLEY. Of course in the Revised Statutes, when there is another volume printed, there is no reason why that should not come in chronological order.

Mr. FORREST. I cannot see any reason why we cannot transpose that.

Senator BARKLEY. You see the value of it.

Mr. FORREST. Yes.

Senator BAILEY. We will just suggest that.
Mr. HESTER. I covered section 301.

of section 3262.

Section 301 is amendatory

Senator BAILEY. Now, I will have to confess I am a little confused on that. I do not understand it.

Senator KING. Has a situation developed under existing law under which the Government has been defrauded of revenue, or under which persons have escaped paying a legitimate tax?

Mr. HESTER. No; this is merely in the interest of the industry, where the distiller is not the owner of the fee.

Senator BAILEY. "No bond of a distiller shall be approved unless", and so forth. Go ahead.

Mr. HESTER. Where he is not the owner of the fee and cannot secure the consent of the mortgagee, or judgment creditor or other lienholder, or if the distiller's property is forfeited to the United States, the Government shall have prior rights. If he cannot secure thatwe are now amending the law to permit him to give a bond. This is in the interest of the distiller. The Treasury Department feels that this can be done without endangering the revenue in any way. Senator KING. It would protect a distiller who perhaps has a recalcitrant person interested in the property?

Mr. HESTER. That is right. He simply cannot go into the business today if he does not get the consent, so we are giving him the opportunity, if he cannot get the consent, to file a bond.

Senator BAILEY. If I get it right, prior to the acceptance of a bond the distiller must show, first, that he is the owner in fee, unencumbered, and second that he is occupying the mortgaged premises and then he must have proper papers executed by the mortgagee.

Mr. HESTER. If he is the owner in fee he cannot put up a bond. If he is the owner in fee the lien attaches.

Senator BAILEY. I get that. Here is what it says:

No bond of a distiller shall be approved unless (1) the distiller is the owner in fee. That is the first clause. There is no difficulty about that. If he owns the property he gives his bond and then the right of forfeiture applies; he goes there at his risk.

Mr. HESTER. That is right.

Senator BAILEY. Now let us see how it relates to the mortgagee. You have got to call him in; he has got to have notice, hasn't he? Mr. HESTER. Yes.

Senator BAILEY. Have you got a provision here at all whereby an innocent mortgagee would be protected if there was some failure on the part of himself by reason of ignorance of this law on the part of the distiller? You mean to say you would take the mortgagee's rights away from him?

Mr. HESTER. No, not if he did not consent.

Mr. BERKSHIRE. He does not have to consent.

Senator BAILEY. If I own a mortgage on a piece of land, I am the mortgagee and you are the distiller; you go ahead and occupy the premises; I rent it to you innocently; nothing is done by me; I am the mortgagee; I do not know what is going on over there. Would the Government take my mortgage?

Mr. BERKSHIRE. No, sir; unless you consented in advance, unless you had knowledge of it.

Mr. HESTER. That provision is old law, Senator. It has been on the books for many years.

Senator BAILEY. We had a good deal of difficulty about it in North Carolina by the Government undertaking to enforce forfeitures on lands of innocent holders of mortgages, and also on land that was held in fee.

Mr. FORREST. In the case of bootleg stills, sir?

Senator BAILEY. Yes.

Mr. FORREST. They were probably proceeding under section 3281 which provides that where the distilling operations are conducted. illegally, the right, title and interest of any proprietor of the land who has knowledge or notice of or suffers or permits it to be so used shall be forfeited. We do not go any further than that. Section 3251 makes the tax on the distilled spirits a first lien on the equipment with which it is produced, the spirits and the land and buildings, and section 3281 makes the property forfeitable if the person having an interest knew it. We do not go that far here, sir. If the person does not consent he is not bound.

Mr. HESTER. Does he not have to submit his consent at the time he files his notice?

Mr. FORREST. The distiller submits with his notice the consents of various persons interested and then the local officers in the various districts run the titles.

Mr. HESTER. In other words, before he can start the business he must do that.

Senator BAILEY. All this is gone through with reference to the giving of bond?

Mr. HESTER. Yes, sir.

Senator BAILEY. He does not get the bond unless he files in connection with the notice the written consent of the owner. Suppose he should fail to do it and you would not know it, the Government would not know it and the owner would not know it, the distiller is an occupant and he has got his bond, you have no way of knowing where the mortgage is, you are not going to look up titles.

Mr. FORREST. We do look up the titles.

Senator BAILEY. You look up the titles to all the premises?

Mr. FORREST. Yes, sir. When I was in the district I did, sir, and when I was legal adviser in the Baltimore district if the distiller submitted his bond, or the brewer, and if we found the mortgage or the judgment was not mentioned we called him up about it and asked him to explain.

Senator BAILEY. You always looked up the title before you issued the bond?

Mr. FORREST. Before we approved the bond; yes, sir.

Senator BAILEY. Then the liability would be on the Government, I take it, in that instance.